FDI falls 23pc to $1.6bln in July-February

KARACHI: Foreign direct investment sharply fell 22.6 percent to $1.619 billion in the first eight months of the current fiscal year due to slowdown in Chinese inflows, but analysts also attributed the decline to economic adjustment and delayed IMF program that kept overseas investors on tenterhooks.

The State Bank of Pakistan’s (SBP) data on Friday showed that foreign direct investment (FDI) too dipped 49.2 percent year-on-year to $168.3 million in February.

China poured less money into the power sector during the period as a number of early harvest energy projects – the main component of $60 billion China-Pakistan Economic Corridor – were near to completion. But, China continued to remain the top foreign investor with a 56 percent share in net FDI in the July-February period.

Pakistan attracted $899 million in foreign direct investment from China during the period under review compared with $1.324 billion in the corresponding period last year.

The SBP’s data showed that the power sector saw a whopping 66.87 percent decrease to $236.8 million in first eight months.

Analysts said the outlook for the FDI is clouded by risks, including economic slowdown in the country, delays in the International Monetary Fund’s (IMF) program and poor ranking in the World Bank’s ease of doing business index. Pakistan ranks 136 among 190 economies in the index.

“The IMF bailout delay remains a source of uncertainty for foreign investors,” an analyst said. “They appear to be holding their FDI decisions and projects on the expectations of further macroeconomic adjustment and frequent devaluation in exchange rate under the potential IMF program.”

The country continues to hold talks with the IMF for a bailout package. A breakthrough is expected on the arrival of the IMF mission chief in the country on March 26.

In July-February, foreign businesses invested $348 million in the construction sector compared to $472.4 million a year earlier. Financial sector fetched $234.6 million, down 28.72 percent. However, the telecommunication sector witnessed outflows as investors pulled $150.9 million from the sector.

Analysts said declining trend in the FDI may be reversed as the security situation in the country is improving.

Fitch Solutions said a deal with the IMF could see a faster implementation of much-needed reforms to the economy, improved macroeconomic stability and a boost to confidence. “In turn, these dynamics would help to spur greater investment, particularly from Saudi Arabia and China, as well as other countries,” the research arm of ratings agency Fitch said in a latest report.

The SBP’s data showed that overall foreign investment plunged 73 percent to $1.216 billion in the July-February period.

Outflow from capital market stood at around $408 million. Net foreign investment amounted to $5.3 billion during the last fiscal year. Out of total foreign investment, $2.5 billion came from overseas bonds.